Financial management effectiveness of Indonesia's construction state-owned enterprises

This paper addresses a comparative analysis of financial management effectiveness, which evaluates financial performance in the Indonesia’s construction state-owned enterprises (SOEs). State companies were established to make a significant contribution to the growth of national economy and generate profitable revenue for the state. The primary objective is to examine critical aspect of corporate financial strategy that would affect the sustainable growth of SOEs. This research is an extension of a larger study that is an attempt to explore strategic practices for Indonesian construction firms that generates a competitive advantage. The research methodology adopted for this empirical study includes data collection and analysis of firm annual reports and audited financial statements of the SOEs in 2001-2007 fiscal years. All of 14 construction firms under Ministry of State-Owned Enterprises of Republic of Indonesia have been selected as the sample of study. The methodology relies on financial ratio analysis to draw meaningful conclusion. There are some methods and techniques in analysing financial performance of either construction public or private firms, but management effectiveness approach is widely regarded as the ultimate measure of corporate performance. Modified traditional ratios of Return of Investment (ROI) such as Return of Assets (ROA), and Return on Equity (ROE) are adapted to support different purposes of analysis. The analysis reveals that the Contracting SOEs performs more effective than above the Consulting SOEs. Thus, corporate management board of Consulting SOEs need to pay more serious attention to their corporate financial strategies. This perspective will be increasingly important along with the current privatisation policy of the Indonesian government.